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Living off equity

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  • Living off equity

    Hi.

    I have read a couple of books on building a property portfolio and roughly every 10 years the property price will double, therefore given you a profit.

    They also advise to not sell any of the property, but to just release equity to use as a salary.

    Can someone explain or point me where I can find out exactly how this works.

    Many thanks.

  • #2
    Hi Deuce,

    The basic premise of this is that the rent you get in pays the mortgage. You are then relying on the markets to go up over time, increasing the equity in the property.

    You then remortgage the property for a higher amount every few years, increasing the rent to cover the increased mortgage repayments and taking the extra money from the increased mortgage as a salary.

    Great whilst the markets are going up but a huge issue if the markets crash (like just happened) basically then you have lots of houses with big mortgages, which may well drop into negative equity - bingo you are bankrupt if rents drop / don't get paid and you can't service the repayments.

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